Gambling Website’s Bitcoin-Denominated Stock Draws SEC Inquiry

The Securities and Exchange Commission is conducting a formal inquiry into an online gambling website’s Bitcoin-denominated stock sale after the agency signaled that such dealings may break U.S. laws.

The SEC sent a letter asking MPEx, an online exchange for Bitcoin-based trading, to provide contracts and other documents relating to, according to a copy of the request posted on the website

Mircea Popescu, the MPEx operator to whom the letter was addressed, confirmed its receipt in an e-mail to Bloomberg News and said MPEx hasn’t broken any laws. The letter lists SatoshiDice as the topic of the inquiry without specifying what rules are at issue.

Andrew Ceresney, the SEC’s enforcement director, said in January the agency is “very focused” on whether Bitcoin-denominated stock exchanges are illegal. U.S. laws require securities-trading platforms to be licensed. The regulator’s decision to open an inquiry doesn’t mean its staff has concluded any rules were broken, according to the letter.

“You can invest in those companies with your Bitcoin online,” Ceresney said at a January conference. “And so the question is, are those unregistered exchanges or broker dealers operating in violation of the securities laws?”

John Nester, a spokesman for the regulator, said he couldn’t confirm or deny the existence of any inquiry.

SatoshiDice listed shares on MPEx in August 2012, according to an MPEx-affiliated website. The SEC letter seeks “all documents or contracts” between the exchange and SatoshiDice’s Erik Voorhees, concerning the listing or sale of the shares, as well as his account statements.

Company Sold

Voorhees said in an online statement in July that he’d sold the company to a “private party” that he didn’t identify. SatoshiDice’s stock is not currently among those listed on MPEx’s site. Voorhees declined to comment in an e-mail, and an e-mail sent to a general mailbox at SatochiDice was unanswered.

Popescu, in an Internet chat message, said the SEC didn’t cite any rules that may have been broken. He asserted that U.S. securities laws don’t apply to MPEx because Bitcoin doesn’t fall under the legal definition of money.

“There’s no discussion of breaking laws,” Popescu wrote. “Somebody wants to propose I broke a law, they’re to come up with the law I broke.”

Bitcoin, the most popular digital currency, emerged from a 2008 paper written by a programmer or group of programmers under the name Satoshi Nakamoto. It uses a public ledger to record transactions made under pseudonyms, and transactions are cryptographically signed for security. Because it has many of the same properties as traditional currencies, entrepreneurs have used it to create securities, such as shares and derivatives.

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